Halfway through his second term as New York’s chief executive, Gov. Cuomo could be approaching a fiscal turning point.

Cuomo’s six-year budget record has mixed tax cuts and tax hikes, shrewd economizing and outright waste, sound financial practices and objectionable gimmicks. Through it all, however, he’s stopped the Legislature from spending wildly beyond the state’s means. Given Albany’s history, this is no small accomplishment.

The question now is whether he’ll keep it up — or let taxpayers down.

In every budget since 2012, Cuomo has held reported growth in the state operating funds to 2 percent a year. To be sure, he’s manipulated numbers to get there — most notably by deferring $3.3 billion in pension contributions. The deferrals ended last year, but the pension debt payback won’t end until 2026.

The governor’s proposed $98 billion state operating-funds budget for fiscal 2018 again shows growth below the 2 percent line — with help from still more gimmickry, such as a shift of 75 State Police positions into the capital-projects fund. Still, Cuomo can boast with only slight exaggeration that (so far) he’s done a better job of controlling spending than his last four predecessors.

But he’s not making it any easier on himself. Cuomo’s commitment to restraint will be tested by his increasingly progressive policy orientation and populist pledge to shovel more benefits to the middle class, including “free” public-university tuition for families earning up to $125,000.

The focal point of Cuomo’s latest budget, unveiled last week, is a three-year extension of the state’s so-called millionaire tax, applied to households earning a little over $1 million a year ($2 million for married joint filers). Due to expire on Dec. 31, 2017, under Cuomo’s plan it would continue through Dec. 31, 2020.

The tax now raises about $4 billion, an average $89,000 tax hike for the 45,000 applicable households. It’s imposed at an 8.82 percent flat rate, rather than the 6.85 percent set in permanent law.

For New York City residents, the top state and local rate rises to a sky-high 12.7 percent, second highest after California’s. By comparison, the median top rate for all states with income taxes is about 6 percent.

As Cuomo himself has said in other contexts, a high income-tax rate undermines New York’s economic competitiveness. Compounding the problem, President Trump and congressional Republicans aim to eliminate or curtail state and local tax deductions to help pay for federal income-tax rate cuts in top brackets.

The millionaire tax dates back to 2009 and was extended by Cuomo in 2011 at a slightly lower rate applying to higher income thresholds. To win Senate Republican backing, it was coupled with temporary cuts in middle-class tax brackets.

Last April, as part of the fiscal 2017 state budget deal, Senate Republicans got the governor to make the middle-class cuts permanent. On top of that, the enacted budget included a seven-year phase-in of deeper cuts in most brackets below $321,000.

In his budget rollout, Cuomo implied the middle-class tax reductions were a new program that could only be paid for by a full extension of the millionaire tax.

In reality, the tax-cut schedule is already locked into law. And Cuomo’s own financial plan shows that, if he keeps holding spending under 2 percent, he’ll only need to extend a millionaire tax for two years, not three — and by only half as much in the second year.

Senate Majority Leader John Flanagan says he opposes a full extension of the millionaire tax, and his Senate Republican colleagues just passed a bill that would make the 2 percent spending cap permanent. If they mean it, they can credibly insist on a more limited tax-hike extender, if any.

This would counter a push in the opposite direction from Assembly Democrats under Speaker Carl Heastie, echoing teacher-unions’ demands for a higher, permanent millionaire tax to fund much larger, budget-busting school-aid hikes.

Albany’s perennial tendency toward runaway spending and soak-the-rich taxes can be curbed — if Cuomo, flanked by Flanagan, holds the line.

About the Author

E.J. McMahon

Edmund J. McMahon is Empire Center's founder and a senior fellow.

Read more by E.J. McMahon

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